Expectancy: The Only Metric That Really Matters
One number tells you whether a strategy makes money. Most traders track everything except it.
If you could track a single number about your trading, it should be expectancy. It answers the only question that matters: does this make money over time?
The formula
Expectancy = (Win rate × Average win) − (Loss rate × Average loss)
Worked example: 45% win rate, average win 150, average loss 80.
(0.45 × 150) − (0.55 × 80) = 67.5 − 44 = +23.5 per trade
That is your average outcome per trade, including the losing ones. Take 200 trades of that quality and you would expect roughly 4,700 — before considering variance.
Expressing it in R
Expectancy in currency depends on position size, which makes comparison awkward. Expressing it in R — multiples of the amount risked per trade — removes that. An expectancy of 0.3R means you earn 0.3 times your risk per trade on average.
This lets you compare strategies with different position sizes on equal terms, and it makes the growth arithmetic obvious: 100 trades at 0.3R is 30R.
What positive expectancy does and does not guarantee
Positive expectancy guarantees profit over enough trades. It guarantees nothing about the next ten.
Variance dominates the short run. A system with genuine positive expectancy will produce losing weeks, losing months and sometimes losing quarters. This is not the system breaking; it is a normal consequence of a positive-expectancy process with a sub-100% win rate.
Which is why sample size matters so much. Thirty trades tells you very little. A few hundred begins to be informative.
Costs belong inside the calculation
Calculate expectancy using net figures, after spread, commission and slippage. Gross expectancy is a number that describes a market you cannot trade in. Many strategies have positive gross and negative net expectancy, and only the second one pays your bills.
How to improve it
Three levers, in rough order of practicality:
- Reduce average loss. Usually the most achievable. Tighter invalidation, and never widening a stop.
- Increase average win. Letting winners run is where most traders lose the most expectancy, by exiting early out of discomfort.
- Improve win rate. The hardest, and the one most people focus on first.
Reducing trade frequency can also raise expectancy per trade, because filtering out marginal setups removes the trades where costs exceed edge.
Track it honestly
Compute it from your actual filled trades, not your intended ones. The gap between planned expectancy and realised expectancy is where the useful information lives.
Educational content only. Not financial advice.
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